E-commerce in China: Partnerships are essential

26 Mar 2015

With Amazon opening up a storefront on Alibaba’s Tmall, the blueprint of entering the Chinese e-commerce market has largely been laid out. Entering this hugely lucrative country solo is a long shot at best, and complete failure at worst. Although many digital majors and start-ups eye China as a potential revenue generator, few have a clear idea of how to approach this complex market. London corporate finance expects to have improved links with the country, as the UK is entering into a major new banking deal with the Asian superpower, which could pave the way for potentially exciting partnerships in the e-commerce space between the two nations.

China, home to 500 million online consumers and a rapidly growing middle class, has been an elusive market for Amazon. Retail ecommerce sales in China are set to reach $1 trillion in 2018, more than double the size of the US market, according to eMarketer. And while Amazon has been selling business-to-consumer in China (Amazon.cn) for more than 10 years, it has struggled to gain real traction. In 2013, Amazon earned less than 3% of China’s e-commerce business. In addition to Alibaba, Amazon must compete with JD.com, which controls another 40% of the market.

That’s not to say Amazon hasn’t been investing. Last year Amazon bought a Chinese online grocery site for $20 million and fortified its import and export capabilities with new operations in Shanghai’s new free trade zone. On Tmall, Amazon will sell imported women’s shoes, toys, kitchenware and food.

Yet this latest move demonstrates how difficult it is for many Western companies to break into China. Despite Amazon’s strong reputation, world-class logistics network and high quality products – they still needed help. The message is clear: If you want to win in China, you need a partner with the know-how to be successful there.

China is a complex, nuanced environment where many top ecommerce brands have already failed. Ebay, for example, exited China after Taobao overtook the C2C market. Navigating the country’s localization, logistics and regulatory issues is often beyond the abilities of even savviest of US companies. And staying ahead of the continual change in technology and brand preferences of Chinese consumers requires a cultural fluency that most companies simply don’t possess.

Recognizing this, Amazon has made what may be seen as a Faustian bargain in the hopes of reaching a larger population of Chinese consumers. By opening a Tmall storefront, Amazon will have to pay a transaction fee on every item sold to their biggest competitor in China, Alibaba Group. More importantly, Alibaba will now have complete visibility into Amazon’s growing Chinese business.

As China increasingly moves to the top of the list of key ecommerce markets, the battle for retail dominance will continue to heat up. Amazon’s unexpected partnership with an up-and-coming competitor shows both the importance of winning in China and the difficulty in achieving it. Retailers looking to succeed in China would be wise to watch Amazon carefully as they continue to navigate this challenging but lucrative market.

A conversation is never wasted. We’re confident that we can give you all the help you need, but we’ll tell you if we think there’s a better option for you.